Merging with Another Company
The text provides basic information related to merging of a company with another company - such as mergers and acquisitions.
Legal requirements
Mergers and acquisitions, similarly to other capital transactions, are very important both from the economic point of view, as well as the power point of view in terms of globalisation of the world economy. Thanks to the growth of the world economy, global banking market and significant volume of free private capital, the number of mergers and acquisitions has increased around the world. Today, mergers of companies and joint enterprising belong to standard corporate practices. A horizontal merger is a merger of companies who work in the same area and on the same level. In a vertical merger, a company merges with its supplier or consumer.
Merger
A merger is a union of two or more companies into one, either by merger or integration. In case of a merger, one of the companies remains as the successor organisation, while in the case of an integration a brand new company emerges. A merger can occur between national entities, as well as companies from different member states of the European Union, in the form of the so called cross-border merger.
- More information on mergers (in Czech language only)
Acquisitions
Acquisition may be considered a looser expression of cooperation between companies. Another company is acquired, most frequently in the form of acquiring ownership interest in the company. Acquisition of interest can be carried out in the form of a friendly or a hostile takeover.
- Acquisition types and strategies(in Czech language only)
An acquisition is a takeover of another company. It might be more favourable for business to acquire a company with an already established structure.
Special tactics of mergers and acquisitions – hostile takeover
Most mergers and acquisitions occur after an agreement with the management, in a friendly manner. However, sometimes it is easier for the purchaser to open negotiations regarding the target company directly with the shareholders and convince them that the solution will lead to increased value of their shares. The most frequent reason for a hostile takeover is ineffective management of the acquisition target on the side of the managers.
Special tactics of mergers and acquisitions – buy out of an insolvent company
Buy out of an insolvent company is different from the purchase price, which is largely financed from a credit. The premise of the buy out is to find a company that will create sufficient profit for repayment of the credit in the future. The goal of the buy out is to make the company''s management more effective, repay the credit and sell the company within a few years.
The most important legal regulations dealing with acquiring interest in another companies are the Commercial Code and the Act on Transformations of Commercial Companies.
- Commercial Code (in Czech language only)
- Act on Transformations of Commercial Companies (in Czech language only)
Integration of Competitors
Transfers of companies in cases when a company is established or transformed are subject to approval of the Office for the Protection of Competition. However, these are only such integrations of competitors (mergers) where the integrating companies meet the turnover criteria given by the Act of Protection of Competition.
Companies with lower turnover may integrate without the approval of the Office. On the contrary, mergers with the so called community dimension are decided by the European Commission. The integrating competitors are obliged to submit to the Office a proposal for approval of the integration, the particulars of which are stipulated in the appropriate implementing provision.
- Office for the Protection of Competition(in Czech language only)
- Act on the Protection of Competition (in Czech language only)
- Examples of unapproved integrations(in Czech language only)
- Collection of Resolutions of the Office for the Protection of Competition (in Czech language only)
Acquiring interest in another company is typically a complex process requiring good legal contracts for the safety of the parties and it is recommended that the parties in the transaction are represented by professional attorneys. Law offices also frequently carry out a detailed legal audit per request of the participants, which is intended to find out whether the acquisition of an interest in a company is free of legal or economic risks.
Resources
The following governmental and non-governmental institutions and web portals offer further information and useful services related to the takeover of a corporation or a company.
- Official portal for business and export (in Czech language only)
- Portal of the public administration of the Czech Republic (in Czech language only)
Personalised help and advice
The Enterprise Europe Network is an extensive network (with 600 host organisations and 4 000 full-time staff) providing information and advice to entrepreneurs through its local partners.
Document created in co-operation between Your Europe - Business (EU portal for companies) and BusinessInfo.cz.
